Each day of my senior in high school ended with Music
Appreciation, taught by a talented guy who also directed the school's Jazz
Band. We spent a great deal of time analyzing compositions from the late
Nineteenth/ early Twentieth centuries (Dvorak, Prokofiev, Copland).
Quizzes would be given every Friday, which included an essay question that he
would announce on the spot. I can't recall the composer (probably Dvorak)
or the symphony, but one essay question asked us to compare and contrast the first
and second movements. I focused on the transition between the movements,
which took the form of a single cymbal crash (either at the end of the first or
the beginning of the second). In fact, I spent the entire essay
bullshitting about the brilliance of using a single percussive note to
simultaneously end the 'adagio' feel of the first and set up the 'largo' tone
of the more somber second. (He not only gave me an 'A,' he read the
entire essay to the class on Monday- haha!).
So what's the point? In my opinion, the Market hit
that percussive note in the final five minutes of Friday's trading. I may
be entirely wrong (as I am about 50% of the time). But it sure sounded
that way to me. In the end, it's all good. The third movements of most
symphonies are generally pretty upbeat!
'Where I stand is a function of where I sit.'
ReplyDeleteI always try to keep the above in mind when assessing my stance. My thoughts this morning:
(a) Not only was I wrong to close out positions in China/ Emerging Markets last Thursday, I was spectacularly wrong. The Hang Seng was higher by +2% (600 points!), Shanghaier by +1.24%. EEM/FXI/ASHR bidding an average of +1.5% this morning.
(b) Currently in 100% cash. What if I were still fully invested? Pretty sure I would be preparing to close positions today. Unless that changes, I won't be looking to chase prices here.
(c) One subtle change in my 'gut reaction' to the overnight gaps up in Asia-> rather than feeling left behind, I'm simply feeling I exited early. In other words, I'm having a hard time shaking the conviction that a downside move is imminent. Which is where I need to appreciate how much of my downside take derives from 'where I sit.'
Here's the alternative take. If I move away from 'where I currently sit,' I think it comes down to this-> the overnight gaps higher in global markets succeeded in leaving behind any traders who sold into Friday's decline. If I transition to this perspective, my task becomes more difficult-> how to reenter positions at minimal risk. As I watch the markets today, there are two goals-> deciding which of the two takes is odds on, and if it's the alternative take how best to reopen positions.
DeleteNice jump in AKS today. I did think it would recover its drop from late October highs at $6.23 to early November lows of $4.22 (which is why I bought it at $4.65 and then added at $4.25), but I did not think it would happen so quickly (which is why I sold at $4.80 and at $5.00 and could not reload my trading position). Now I am back to my long term share lots, which I acquired at around $6 some months ago. Decided to sell a small part at $6.25 just now, so as to have more motivation to reload during any pullback. If AKS keeps powering up, I'll gladly keep scaling out of my long-term position.
ReplyDeleteActually, so that I don't forget about this, I just placed a buy limit order at $6 for the shares I just sold.
DeleteNo interest in chasing stocks here. Is there an alternative? There's always an alternative.
ReplyDeleteAs stocks pull in cash from the sidelines, it makes sense to ask how the cash was raised. Often it's via rotation from another asset class. The consensus view right now re global bonds is quite negative.
The challenge today was to find an asset/asset class that (a) expresses my belief that stocks are short-term extended, (b) allows me to profit if stocks pull back, (c) does not, however, exhibit a perfect minus-1 correlation with the market (as a short position would-> in other words, the asset is able to move higher along with the global stock market), and (d) has experienced its own recent pullback.
Opening a position in VTIBX (Vanguard Total International Bond Fund) at the close. The ETF equivalent, BNDX, is currently off -0.25% (or about -1.9% lower than the mid-December high). I don't have a time horizon other than to say 'anywhere from a day or two-> a couple of weeks.' The fund has a one-day settlement which should allow me to rotate back into stocks the same day I decide to sell.
Last week, BTE hit my sell limit at $3 for the shares I purchased at $2.75, but then it retreated the next day and I, opportunistically, decided to reload at $2.92. Even though BTE is up only 5% since my reload, I decided to take profit just now and sold that batch at $3.07. That reload was done on a whim and was done in a hope of a quick rebound, which now justifies selling it for good. My next sell limit is at $3.25 for the shares I added at $2.85 (this is the kind of a percentage gain I am aiming for when trading POS stocks like BTE).
ReplyDeleteRight after my sale, BTE jumps to new daily highs. :) Well, this sale was a trick to make it move higher, so that it would hit my next sell limit at $3.25 faster. :)
DeleteCan you believe this, folks? Yesterday I wanted to set the next sell limit for AKS at $6.5, but forgot to do it. Today's, AKS reached a high at $6.53, so my sell limit would have been hit, and I would have reloaded it now! Too bad... Well, I set that sell limit now.
ReplyDeleteOn the bright side, BTE fell into my yesterday's trap and hit my sell limit at $3.25 for half of the shares I purchased at $2.85. Set my next sell limit at $3.5 for the other half, and also set a buy limit at $3 for the shares sold today.
ReplyDeleteWhen I sense 'froth' at the craps tables, my usual move is to quietly move chips from the 'Pass' line to the 'Don't Pass' box. That's essentially what I did last Thursday.
ReplyDeleteOn Friday, the DJIA plunged -118 points and my bet looked good. On Monday, the markets rallied. Today, there is continuation of the rally. I can't say the price action invalidates my defensive stance, but it certainly revises my thinking.
There's no doubt we're seeing froth in the global markets. The challenge is going long at a reasonable premium. Emerging markets have jumped +3% since my last exit 12/28. The total world market has rallied +1.4%. That leaves the total US market, into which I'm able to buy back in at only a +0.9% premium. (To be honest, had I noticed yesterday that it was possible to buy back into the US market at only a +0.3% premium I probably would have done it! I was too focused on the global markets.) The reason for the relatively low premium (when comparing current bids on VTI to last Thursday's close) derives from the end-of-day selloff in the US last Friday-> which now seems to have been what Futia calls an effective 'shakeout followed by a lock-out rally.'
Back to a long stance. Closing VTIBX (Vanguard International Bond Fund) and simultaneously opening VTSMX (Vanguard Total US Stock Market).
Note that this is not a low-risk entry. I'm betting that a long streak at the table continues even longer! More thoughts on this later.
VTIBX closed up +0.18%. VTSMX closed up +0.58% @ 67.64, or +0.865% above last Thursday's closing price of 67.06. 0.865% less a +0.18% one-day return on VTIBX allows me reentry into the (total US) stock market @ a reasonable 0.685% premium. Not quite as good as yesterday's 0.28% premium, but I'll take it.
DeleteAs pointed out earlier, not a low-risk entry. My take is that investors left behind by an unexpected January rally will keep a floor under prices.
AKS hit my sell limit at $6.5 for the shares I purchased a while ago at around $6. I just missed one possible round trip yesterday...
ReplyDeletePlaced a sell limit at $7 for the rest of my position, acquired around $6 a while ago.
DeleteDJIA +163 points, SPX +14 points. VTI (total US market) +0.5%. Plan to close VTSMX (Vanguard Total US Market Fund) end of day.
ReplyDeleteHere a couple of interesting articles that help to explain why investors have (and may continue to) bid prices up:
(a) https://www.marketwatch.com/story/tax-cuts-mean-stock-market-almost-as-cheap-as-a-year-ago-david-tepper-2018-01-04.
Hedge fund owner David Tepper argues ‘Explain to me where this market is rich? It’s not rich with the tax thing that just changed earnings projections. With earnings forecasts going up and interest rates where they are, how is this market expensive? I don’t see the overvaluation.’
(b) https://www.marketwatch.com/story/stock-market-investors-should-brace-for-a-possible-near-term-melt-up-jeremy-grantham-2018-01-03
Jeremy Grantham of GMO outlines the case for a +60% melt-up in global markets in 2018.
I don't necessarily disagree with either of them. A +20% to +60% year is well within reach if conditions are right. But for today, my take comes down to (momentarily) walking away from the craps table.
You'll recall that I last became aggressively bullish (from a long-term perspective) in January 2016-> buying and holding a basket of global market ETFs/funds (over-weights on China/ Brazil/ Emerging Markets). I held through mid-2017 before changing to a strategy of buying declines/ selling inclines for the remainder of the year (because the markets rarely corrected much, the strategy barely kept up with a buy-and-hold approach).
Based on current bids for VTI, I'll end the day up +0.46%. Realistically, that's a decent one-day gain. Trading is like any other job. One day at a time, 'three yards and a cloud of dust' (Woody Hayes re Ohio State's running game). That's not a bad analogy. Woody Hayes would have made a decent trader. His other notable 'three' quote: 'three things happen when you throw a forward pass, and two of them are bad,' is also relevant. Given the current environment (extremes in put/call ratios at extremes, AAII investor sentiment, speculative froth), it's not unreasonable to say the same re current risk/reward scenarios-> 'three things happen when you hold positions overnight, and two of them are bad [well, one is neutral as there are no fourth downs in trading].'
Interesting links, 2nd_ave -- thanks! I'll keep them in mind.
DeleteI have an email asking me to download Jesse's latest from his website. Can one of you forward his site address?
ReplyDeleteI think the link you are looking for is this:
Deletehttp://jessestine.com/wp-content/uploads/2017/12/BLOCKSANITY.pdf
Thanks, David. A good read, as always.
DeleteInvesting in Kuala Lumpur real estate sounds interesting. I forwarded his 'notes' to a Malaysian colleague for her reaction.
David-
DeleteDo you have a link to the $NASI and/or $NYSI? I could probably Google it, but if you already have the charts set up...
2nd, I haven't gotten to these stocks -- stopped after looking at RIOT and GROW charts, which both seemed to provide good entry points not far from stop levels I could clearly define for myself...
DeleteLet me know what your colleague says about Kuala Lumpur real estate and whether she thinks it is possible to find a reputable real estate management company.
The $NASI and $NYSI are Summation Indexes from which jesse derives his NASI Buy and Sell Signals. Just thought you might have started to track the indexes on your own.
DeleteBDI had a strong pullback recently, but despite that pullback, NMM crept up. Today, BDI went up, which suggests that the pullback might be over. I think NMM will rocket up during the next up leg in BDI. Just placed a buy stop limit order for some NMM at 2.45/2.50.
ReplyDeleteBitcoin price is rebounding, bit RIOT (one of Jesse's stocks) is still near it's double bottom. Just bought some at $25.28
ReplyDeletePlaced a sell stop at $23, the level at which it double bottomed after its mid-December spike.
DeleteAlso, my buy stop limit order for GROW was hit at $5.1 this morning.
ReplyDeleteBought more GROW at $5.00. Its 5-day chart gives me a feeling that another step up is coming.
DeleteHowever, if the price drops below the January 3 intraday low of $4.5 in the next couple of days, the chart will stop looking bullish. So I just placed a sell stop limit order at $4.5/$4.4 for all GROW I purchased today.
DeleteJust bought a little of NMM at 2.43 so as to have some exposure to it. Placed a buy limit order at 2.35 for more.
ReplyDeleteMy buy stop limit order was just triggered at $2.46 for a little more NMM.
DeleteNVTA hit my sell limit at $10 for my last bunch of shares, which I purchased via CBMX at $7.80. Thank you, Mike, for the great stock tip!
ReplyDeleteHow many of you have read Grantham's note re a melt-up? It's not that far removed from my own take re EEM last year (one which I either didn't have the guts to stick with, or one which I underestimated). I'm leaning towards agreeing with Grantham.
ReplyDeleteI read the article from a neutral stance, but having read it I can't get the scenario out of my head. It's one of those 'it's crazy but I think he's right' reactions. And if I think he's right, that makes it difficult for me to remain neutral.
DeleteYou all remember that fateful day in March 2009 when I capitulated, right? The next morning I woke up and immediately realized what had happened-> made a hard U-Turn and went leveraged (3x) long.
DeleteIs is possible that I'm experiencing the exact reverse right now? Grantham is a long-time bear who is now bullish-> you could say he's capitulated, and in a big way. I'm listening to this guy, and getting all jacked up. Market tops don't play out the same way market bottoms do, but maybe I should look at my reaction to his scenario as a signal that it's time to turn bearish.
Just a thought.
Trading crappy stocks is hard. Got stopped out of both RIOT and GROW today. GROW has some investments in the Blockchain technology, which explains why it might be down simultaneously with RIOT today. Bitcoin has pulled back hard today. The 3-month bitcoin chart is not looking bullish at all after this pullback. And so is the 3-month chart of RIOT. I think RIOT will break down the $23 support soon and will head toward the previous support at $15. So I have just shorted RIOT at $23.90.
ReplyDeletePlaced the buy stop limit on RIOT just above the recent high, at $25.75/$26.
DeleteIn fact, thinking this through further, if RIOT does rise above the previous high of $25.75 before it breaks through $23, then it will have made a triple bottom at $23, and so going long would once again make sense. So I just placed an additional buy stop limit order on RIOT at $25.80/$26 in another account.
DeleteNice decline in RIOT at EOD. Now I have a better spot to place a buy stop limit order for my short position -- just above the late day high of $24.10, say at 24.10/24.20. This would give a minimal potential loss on the large short I have opened today at $23.90.
DeleteSimilarly, moved my buy stop limit order on RIOT in another account to $24.20/$24.40.
DeleteRIOT -- WTF??? It keeps stopping me out and moving in the opposite direction after that. That's how computer algorithms make money off human traders now days...
ReplyDeleteI know what I did wrong. Jesse said to buy only those stocks that are already going up, and to not buy those that you THINK should go up, since they can stay range-bound for a long time. RIOT, right now, is an example of the stock that has flattened out over the past few weeks. So according to Jesse, it should not be traded.
ReplyDeleteI now see that RIOT is under its 23 support level, so I'll take the last shot at shorting it, now at $22.86.
ReplyDeleteWith few exceptions, US and global indexes are pulling back today. However, not all pullbacks are created equal. The one pullback I like is in the mining sector. GDX (miners) began a solid uptrend in mid-December, followed by a very modest decline over the past few days.
ReplyDeleteI opened positions in WPM (Wheaton Precious Metals) and GG (Goldcorp) earlier in the day, and plan to add RYPMX (Rydex Precious Metals) at the close.
My RIOT short is finally working! RIOT convincingly broke below the $23 support level it established on December 13 and then tested several times. I hope this break is for real -- it would be a shame to see it reverse tomorrow. Right now, the 6-month RIOT chart is a perfect example of a bubble gone bust. Just in case, though, placed a buy to cover stop limit order at $22.90/$23.
ReplyDeleteIt is interesting that bitcoin has not broken through its late December support level of 12800. When it does, RIOT's fate will be sealed.
DeleteI hope you rode the short all the way down, David.
Delete2nd_ave, I am hoping to ride my short down to the $14 plateau established in late Nov. I placed a buy to cover stop order at my entry of $22.90 -- let's see what happens now! :)
DeleteSpot gold prices are changing hands @ the day's high (around 1323->http://www.kitco.com/charts/livegold.html). Although I believe yesterday's entry was relatively low-risk, overall the mining sector is probably the one I trust the least over periods longer than a day or two.
ReplyDeleteGG (Goldcorp) off @ 13.9x for a +1 gain. WPM (Wheaton) off basically flat. RYPMX (Rydex Precious Metals) off at the close (based on current bids for GDX [miners]), hoping for a +0.54% gain. Coincidentally (or not), we're seeing about the same percentage gains in EEM (emerging markets), VTI (US indexes), the total world market (VT), and even TLT (the long bond). In other words, all asset classes are seeing a lift.
Well, there is one asset class that is not-> bitcoin selling off hard (-8%), taking RIOT (Riot Blockchain) down -8% as well. That would be one sector that makes miners look tame!
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ReplyDeleteHey fellas - Long time since I snuck in here. Hope you guys are doing well. 2nd - I think you're spot on. I was talking to Mark earlier today and mentioned to him that it all just seems too easy right now. I took a hit today on some KODK but even after that I'm looking at +40% YTD. Its January 11th.
ReplyDeleteI'm looking at Weekly and Monthly RSI's on all of the major indexes and I am having a hard time finding similar readings over the past 50 years. I do think this is a direct result of $10 Trillion in QE, though.
I don't know what to do because at the same time I feel like you'll get run over on the short side. Perhaps cash and just wait for some pullbacks in favorite stocks is the way to go.
40% in 11 days? That's amazing! Who is this lucky person? :)
ReplyDeleteLook at the strength in so many sectors. Craziness. It seems like the HODL crypto crowd has taken over the entire stock market.
DeleteMonthly RSI on Dow is 89.9. It hasn't been that for past 33 years (furthest back my chart goes). 1996 is similar to now I think. There was a nice run up in the first month or so and then the market got really choppy. Wouldn't be surprised to see the same. We still don't have signs of a recession, though, so no need to get bearish IMO
"What happens after yrs without much volatility?
ReplyDeleteWe looked at all the times the SPX didn't pullback 5% and found the avg correction the next year is 12%, sees a big jump in 1% daily changes, but also tends to be higher when all is said and done. "
https://lplresearch.com/2018/01/11/charts-to-watch-in-2018-low-volatility/
Mike, which stocks gave you are 40% return in the first 11 days of January? Which of them do you like for the rest of 2018?
DeleteThank you for the CBMX tip! That was my best trading vehicle last year!
Hey David - I've been playing mostly blockchain stuff for the past 3 months. OSTK and KODK for this year. I keep coming back to OSTK. I think its very similar to CMGI back in the dot com boom.
DeleteMike, do you think there is still some upside left in the blockchain? I shorted RIOT yesterday, and its 6-month chart suggests (at least to me) that the bubble is over...
DeleteWhy is OSTK growing like crazy? AMZN should be dominating this space...
DeleteDavid - OSTK is the best blockchain play in the market. Read up on tZero. They need the crypto market to stay hot for their ICO tokens to trade well. They own a dozen different blockchain companies in their Medici Ventures portfolio.
DeleteI think there should be more volatility this year in general so that should open up the chance for some good trading opportunities in stuff like blockchain. There's still a lot of stuff with nice bottoming patterns like SPWR FTK POT.
POT is actually now NTR after merger. I'm only long in SPWR
Delete